Saturday, January 30, 2016

J.D. Irving, Limited Entitled to Limitation of Liability for Barge Overturn

On January 22nd, 2016 Federal Court of Canada released its decision in J.D. Irving, Limited v. Siemens Canada Limited 2016 FC 69. This was an action commenced by J.D. Irving Limited (“JDI”) seeking a declaration that it was entitled to limit its liability to $500,000 in relation to cargo (valued at $40,000,000) that had fallen into the sea, while being loaded on the deck of a barge on October 15th 2008 in Saint John, New Brunswick.

Siemens Canada Limited (“Siemens”) had entered into a contract to supply a number of low pressure rotors and a generator rotor to the New Brunswick Power Nuclear Power Corporation for the refurbishment and upgrade of its Point Lepreau nuclear generating station.

Siemens contracted with JDI to transport the modules and generator rotor from the Port of Saint John to Point Lepreau. JDI chartered a barge, the “SPM 125”, and a tug to assist with the move. JDI retained Maritime Marine Consultants (2003) Inc. (“MMC) to provide naval architectural and consulting services. Mr. Don Bremner was the principal and owner of MMC. BMT Marine and Offshore Surveys Limited (“BMT”) was retained by Siemens and its insurer, AXA Corporate Solutions, to provide marine surveying services for the move of the cargo. The attending surveyor was Mr. Douglas Hamilton (“Hamilton”).

On October 15th, 2008 two of the rotors were placed on self-propelled multi-wheeled transporters owned by JDI. This allowed the rotors to be driven or rolled on and off the SPM 124. While in the process of loading the second transporter onto the barge, it tipped to starboard, fell over and off the barge into Saint John Harbour. The other rotor, which had been placed on the first transporter loaded onto the barge, immediately followed.

A flurry of litigation ensured. Siemens commenced an action in the Ontario Superior Court of Justice against JDI, BMT and MMC claiming breach of contract, negligence etc. The claim was for $45,000,000.00. JDI filed a limitation action in the Federal Court of Canada seeking to limit its liability to $500,000.00. In June 2011 Justice Heneghan heard a motion on the limitation action and granted the motion of JDI to enjoin any other proceedings proceeding before any court or tribunal with respect to the incident. In other words, all actions had to take place in the Federal Court of Canada. She also ordered the limitation fund to be constituted pursuant to s. 32 of the Marine Liability Act. Siemens appealed to the Federal Court of Appeal. The Federal Court of Appeal upheld Justice Heneghan’s decision [ See Siemens Canada Limited v. JD Irving Limited, 2012 FCA 225, and the Fernandes Hearn LLP newsletter of August 2012]. On July 5th 2013, Justice Heneghan ordered that the limitation action proceed before the liability action. The limitation action took place over a three week period in October 2015 before Justice Strickland.

In the decision released on January 22nd 2016, Justice Strickland provided an extensive review of the evidence at trial. The issue before Her Honour was whether JDI was barred by its conduct from limiting its liability to $500,000 under the Marine Liability Act (incorporating Article 4 of the Convention on Limitation of Liability for Maritime Claims 1976). Article 4 provides:

A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.

Siemens did not assert that any party intended to cause the loss. It did, however, assert that the evidence established, or that the Court should infer, that JDI and MMC acted recklessly and with knowledge that the loss of the cargo would probably result. Siemens acknowledged that the loss must have resulted from the personal acts or omissions of the shipowner (JDI). In the case of JDI, it as argued, the impugned acts or omissions of particular individuals must be attributed to the corporation. In this regard, Siemens argued that two of JDI’s employees, Mr. Roderick Malcolm (“Malcolm”), the project manager of the cargo move, and Mr. David McLaughlin (“McLaughlin”), senior rigging engineer, had the authority to and did act on behalf of JDI in fulfilling the contract with Siemens. Siemens also submitted that JDI was responsible for the conduct of MMC and Bremner. JDI argued that Siemens failed to prove the actual cause of the incident or that a proven cause was recklessness. JDI argued that neither Malcolm’s nor McLaughlin’s actions were attributable to JDI for this purpose.

Justice Strickland reviewed the history and purpose of the Limitation Convention. The focus was to create a convention with a virtually unbreakable right to limit liability.

This is the first Canadian decision to look at recklessness in relation to the Limitation Convention. The prior decision of the Supreme Court of Canada released on April 23rd 2014 in Peracomo Inc. v. Telus Communications Inc., 2014 SCC 29 essentially dealt with wilful misconduct of the vessel owner. [See Fernandes Hearn LLP Newsletter April 2014]. At issue was whether the act of cutting a Telus underwater cable amounted to willful misconduct. Recklessness and knowledge, to that point, had only been considered in Canada in relation to the Warsaw Convention dealing with an air carrier’s conduct and limitation.

Justice Strickland examined the Supreme Court of Canada decision in Peracomo and noted that recklessness in the context of Article 4 required subjective knowledge that the loss that had actually occurred would probably occur, while recklessness in the context of wilful misconduct (for the purposes of marine insurance) has a lower fault element requiring only reckless indifference to the known risk despite a duty to know. 

As Justice Strickland noted, by the conclusion of the trial, Siemens’ main argument, regarding the recklessness, was that JDI had knowingly selected a barge that was too small for the job. It submitted that JDI employees knew that the margin of error of bringing the transporters on centre line onto the barge was small, were aware of a deviation during loading and then failed to pause and address the deviation.

Justice Strickland found that on the evidence (of JDI employees, Bremner, Hamilton, and expert testimony) that the barge was suitable, despite the fact that it was smaller than prior barges used. Her Honour also found that there was no evidence that JDI was made aware prior to the loss that there were any concerns about the barge and the operation.  Five experts testified on the following issues:
a) barge stability;
b) the change in the ballast plan and the free surface effect;
c) the lack of a swept path drawing to delineate the route of the cargo to the barge; and
d) the barge list and transporter stability.

The various experts opined on the cause of the loss. These included that the off centre loading of the transporters on the barge caused a list, the free surface effect of water in the ballast tanks of the barge, the manual mal-manipulation of the hydraulic system on the transporter allowing it to tilt, or the malfunction of the hydraulic system on the transporter allowing it to tilt.

Justice Strickland found that the sequence of the events leading to the loss was that the barge was and remained stable, but a number of factors contributed to the transverse stability of the second transporter being overcome. When that happened, it caused the transporter to tilt to port. The starboard side wheels of this transporter then lifted off the barge, causing the centre of gravity of this transporter and its load to instantly shift from a few inches off centre to three feet off centre. At this point, the situation was irretrievable. The transporter then toppled causing the barge to list, which, in turn, caused the first transporter loaded to follow. Justice Strickland found that there was limited time between the barge assuming a port list and the loss and, during that limited time efforts had been made to deal with the second transporter’s tilt and any resultant barge list.

Justice Strickland found that there were a number of contributing factors to the loss, which in and of themselves, were minimal. She determined that factors such as the small deviation from centre line, the free surface effect, the manipulation of the hydraulics of the transporter or “some combination of these, and possibly other factors, caused the loss of the cargo.”[at paragraph 248].

In dealing with whether the acts of the individuals involved were reckless, Justice Strickland referred to the trial decision in Peracomo quoting Justice Harrington (*1):

            Recklessness connotes a mental attitude or indifference to the existence of the risk.

Recklessness is more than mere negligence or inadvertence and, while it is not necessarily a criminal or even a morally culpable matter, it does mean the deliberate running of an unjustified risk.(*2) Recklessness is assessed on a subjective standard.(*3) Absent any allegation of intent, the person challenging the right to limit must establish both reckless conduct and knowledge that the relevant loss would probably result. While the two are closely related they are separate and cumulative; a challenge to the right to limit will fail if (for instance) only recklessness but not knowledge is established.(*4) Justice Strickland accepted the statement in the Rosa M (*5) that knowledge means actual and not constructive knowledge. It does not include something that the relevant person ought to have known.

Justice Strickland found that, based on the evidence, JDI and MMC personnel did not act recklessly and with the knowledge that, by either conducting the cargo move using the SPM 125 or continuing with the loadout after determining that the aft peak tank was not longitudinally divided (resulting in some free surface effect) and in the absence of a swept path plan, the loss of the rotors would probably result. (*6)

Lastly, the Court dealt with Siemens’ argument that both recklessness and knowledge can and should be inferred based on the circumstantial evidence. Siemens took the position that JDI had the evidentiary burden to explain what caused the loss of the cargo since the evidence was exclusively in the possession and control of JDI. It argued that JDI’s Corporate policy required an investigation into the loss and that JDI did not do one in accordance with its own policy. Siemens argued that the Court should infer that JDI called a halt to its investigation because it did not like the early findings. It asked the Court to apply the reasoning in Connaught (*7) to apply an adverse inference against JDI.

Justice Strickland reiterated that the evidence demonstrated that there were no concerns about the move. She noted that “inferences must arise from proven facts and go beyond speculation or conjecture” (*8). She declined to infer that Malcolm, McLaughlin and Bremnar had concerns that the barge was too small for the intended purpose. As to the investigation JDI testified that because Transport Canada was conducting an investigation they immediately referred the matter to JDI’s legal department, which took over the investigation (as opposed to a formal investigation pursuant to its existing policy). JDI also engaged an expert, Martin Ottaway (whose representative testified in court).

As to Siemens’ assertion that an adverse inference should be drawn, Justice Strickland distinguished the Connaught decision. In Connaught, the defendant carrier failed to explain why the cargo was not placed in a freezer at Heathrow airport as required. It did not call any evidence on this issue. In this case, JDI did not fail to call evidence. JDI called as witnesses most of the persons directly involved in the loadout. It tendered two of its own expert reports as well as calling a BMT witness and BMT’s expert. “The wealth of direct evidence put forward by JDI in this case distinguishes it from the evidentiary vacuum faced by the Court in Connaught.” (*9)

As to the argument by Siemens that an inference should be drawn of recklessness and knowledge,  Justice Strickland concluded that it was not obvious that a number of factors would act in combination to cause the loss. At the time of the incident a number of JDI and MMC personnel were on the barge working. If they had known that the loss was probable, it is unlikely that they would have put themselves in harm’s way.

Accordingly, limitation of liability was granted.

(*1) at paragraph 264
(*2) at paragraph 265
(*3) at paragraph 267
(*4) at paragraph 267
(*5) MSC Mediterranean Shipping Co SA v Delumar BVBA and Others (The “MSC Rosa M”), [2000] 2 Lloyd’s Rep 399
(*6) at paragraph 270
(*7) Connaught Laboratories Ltd. v. British Airways 61 OR (3d) 204; 217 DLR (4th) 717; 13 CCLT (3d) 288; [2002] OJ No 3421; affirmed 77 OR (3d) 34; 253 DLR (4th) 601; [2005] OJ No 2019. Rui Fernandes was the successful counsel in the Connaught Laboratories Ltd. case.
 (*8) at paragraph 290

(*9) at paragraph 298


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